Collections and default status give substantial financial difficulties. It’s vital that you are aware of the possible impacts of student loan collections to you. Doing this will encourage you to get yourself out and get all your finances on track. Also, knowing how collections really works will help avoid any shocks along the way.
Following are the impacts if you’re student loans are in collections:
- Your career options are compromised
Depending on your case, having a defaulted student loan could affect your future career route. For instance, you could be deprived of from registering in the Armed Forces or pursuing a job in a federal agency.
A lot of city, county, and state governments won’t employ people with defaulted student loans as well. What’s more, defaulted student loans could even stop government contractors from getting the needed security clearances to perform their work.
Defaulted student loans could even make it difficult for you to renew a professional license which you currently hold. In some circumstances, the license might be totally revoked. That can substantially impact your career plans, income, and even your happiness.
- Your credit score declines
Those with student loans in collections and have defaulted loans display in your credit history and reflect in a lower score. These loan statuses can lead in some disastrous significances. For example, it could make getting approved for a mortgage, personal loan, car loan, or car lease complicated and stressing. It will also raise the interest rates on your loans you are able to get approved.
Worse, you might even have a difficult time safeguarding an apartment, utilities, or a phone plan. That negative mark on your credit history could also impact your capability to find a new profession. That’s true particularly when your work within the financial sector.
Fortunately, you can still do other things to fix your credit score. Nevertheless, student loan defaults and late payments will remain within your credit history for seven years.
- You might lose your federal loan benefits
Federal loans are the preferred way for students to pay for college because of the many benefits that come with them – such as deferred payments (including interest). Benefits like this go away if you ever default or have a student loan go into collections.
- You can’t defer your loans ever
A deferment enables the borrower to stop or lessen their monthly payments temporarily for a particular time. In this case, you’re still accountable for paying accumulated interested throughout a time of deferment. However only on those unsubsidized loans, Direct PLUS loans as well as FFEL PLUS loans qualify.
If the loans are in default status or collections, expect that you can’t longer defer them. That’s the major reason why it’s better to apply for deferment when you believe you’ll have a hard time making the monthly loan payments.
- You lose entitlement for any forgiveness plans
Defaulted loans and student loan collections will not be entitled to any federal student loan forgiveness programs. That’s the main reason why it’s recommended to opt for income-driven repayment plan before defaulting on the loans. Doing this will help you make payments more controllable. It will also avoid you from dropping behind.
- You lose entitlement for any federal financial assistance
Another impact of having your student loans in collections or default is that you can’t apply for or get any federal financial assistance. That can make it hard to go back to school after time off. It will also make it hard for you to pursue a higher degree.
- Your federal tax return might be suspended
The federal government has the power to take your federal tax returns and apply it to your balance owed. Often, your state tax returns can be confiscated too. The Department of Treasure suspends your full or partial refund to help resolve the federal student loan debt. When you file married together, the Internal Revenue Service could also go after the refund of your spouse.
- Your wages might be garnished
Apart from suspending your tax return, a judge might order that your collections agency or lender can take money straight from your paycheck. That situation is referred to as wage garnishment. For some federal loans, a lender could take up at least fifteen percent of your income. For those private loans, they could take up at least twenty-five percent.
- You now are indebted collection charges
Collection agencies charge fees to recover some or all of what you owe – only these fees are charged to you, the borrower, and not the lender. Usually, the fee falls anywhere from 18 percent to 40 percent of your outstanding student loan balance.